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Posted by
Admin
on 2009-11-06

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Where you acquire funding from may not just be as simple as how much money you are looking to raise. Your initial round of funding sets the precedent for all future rounds. Who you take money from and understanding the consequences is critical. Chris Dixon, CEO of Hunch, recently wrote on his blog about pitfalls of accepting money from the "wrong" entity. Discussed here are the difference between VC and Angel money as well as what to watch out for when accepting seed funding. Here’s the roundup:

VC or Angel, Don’t Approach The Wrong Source - Brad Feld outlines guidelines for whether you should be approaching a VC or Angel investor. From the amount of money you are looking to raise to the type of company you are building, these factors determine whether to approach a VC or Angel. - Entrepreneur

Taking Seed Money From Big VCs - If a big venture firms isn’t "following on" with their initial seed investment, that can cause serious problems for the entrepreneur. Even if a VC wants to follow on, Dixon says, "you are likely to get a lower valuation than you would have had you taken money from other sources of funding." He walks through an example of how this can happen. - Silicon Alley Insider

Red Flag Signals for VC Firms - Dixon explains a rather misunderstood phenomenon about VC sponsored seed incubator programs. Many people think that because they were associated with a prestigious VC firm, their company would be widely welcomed in the VC community. Dixon points out, alternatively, "the better the VC, the stronger the negative signal when they pass." Once a well respected VC firm passes on your deal, it sends a major negative signal to other firms when looking to raise money. - Chris Dixon’s Blog